The Best Dividend Stocks to Buy and Hold Forever

Dividend stocks can be terrific investments. Dividend payers in the S&P 500 have outperformed non-payers by more than two-to-one over the past 50 years, according to data from Ned Davis Research and Hartford Funds. The best returns have come from companies that routinely increase their dividends.

There's an abundance of excellent dividend stocks available. One sector ripe with high-quality dividend growth stocks is the real estate investment trust (REIT) industry. Many REITs pay high-yielding and steadily rising dividends, making them ideal stocks to buy and hold for a potential lifetime of passive dividend income. Here are three top options to consider.

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Extra Space Storage

Extra Space Storage (NYSE: EXR) is the largest self-storage REIT by market share in the U.S. The company owns or manages nearly 4,200 properties with over 322 million square feet of rentable space (15.3% of the entire U.S. market). It owns 48% of its properties outright, owns interests in another 11% through joint ventures, and manages the other 41% of its portfolio. Its owned properties produce steadily rising rental income while its managed portfolio generates stable management fees.

The REIT has expanded its portfolio over the years by acquiring new properties, investing in additional joint ventures, and growing its third-party management platform. It has also made a couple of larger-scale acquisitions, including fellow REIT Life Storage for $15 billion in 2023. This expansion has enabled Extra Space Storage to grow its income, allowing it to increase its dividend. Over the past decade, Extra Space Storage has boosted its payout by over 110%. It currently has a more than 6% dividend yield.

Extra Space Storage remains well-positioned to continue increasing its dividend. It has a strong balance sheet, providing it with considerable flexibility to make new investments. The REIT has significant built-in growth potential, as it often acquires properties from joint venture partners, those it manages when current owners sell, and purchases development projects it has funded upon completion (the REIT has a bridge lending platform to support self-storage developers). Extra Space Storage's steadily rising dividend has enabled it to produce robust total returns for investors. It has delivered a total return of more than 2,400% over the past 20 years, ranking as the third-best performance in the REIT sector.

Realty Income

Realty Income (NYSE: O) is the world's sixth-largest REIT. It owns over 15,000 retail, industrial, gaming, and other properties across the U.S. and Europe.

The REIT primarily invests in properties secured by long-term net leases. That lease structure produces very stable rental income because tenants cover all property operating costs, including routine maintenance, real estate taxes, and building insurance.

Realty Income routinely acquires additional income-producing properties. That steady growth has enabled the REIT to routinely increase its 5.7%-yielding dividend. It has raised its payment for the past 112 consecutive quarters, growing the dividend at a 4.2% compound annual rate over the past three decades. That has helped support a robust 13.7% compound annual total return for investors. The steady dividend growth should continue as Realty Income keeps expanding its real estate portfolio. It has one of the best balance sheets in the sector and a massive investment opportunity ahead ($14 trillion estimated total addressable market for global net lease real estate).

Rexford Industrial Realty

Rexford Industrial Realty (NYSE: REXR) is an industrial REIT focused solely on the Southern California market. It owns 420 properties with 51 million square feet of space.

Southern California is one of the world's largest industrial real estate markets. It benefits from strong demand and tight supply. Those fundamentals help maintain high occupancy levels and drive healthy rent growth for industrial properties in the region. As a result, Rexford Industrial Realty routinely signs new leases at attractive rates. For example, new leases signed this year have been 23.9% above the prior rate on average and feature a 3.6% average annual embedded rental growth rate. Rexford Industrial also routinely invests capital to expand its portfolio by undertaking redevelopment projects and making strategic acquisitions.

These catalysts have enabled Rexford to grow its dividend at an impressive 15% compound annual rate in the last five years. Meanwhile, with robust demand for industrial space and a strong balance sheet to continue expanding its portfolio, Rexford is well-positioned to increase its 4.2%-yielding dividend in the future.

Ideal forever dividend stocks

REITs are some of the best stocks to buy and hold for lifelong dividend income. Top REITs, such as Extra Space Storage, Realty Income, and Rexford Industrial Realty, have a long history of increasing their dividend payments. With more growth likely ahead, they're ideal dividend stocks to buy and hold for the long haul.

Matt DiLallo has positions in Realty Income and Rexford Industrial Realty. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Extra Space Storage. The Motley Fool has a disclosure policy.